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Wednesday, April 27, 2011

Before we begin on how to get your insurance claims easily, we need to cover the basics of what insurance is and things like that. But, you probably know what Life Insurance is, what it is used for. And if you are one of the few who are not aware of the same, don’t worry. I have already written a few articles on what Life Insurance is, what Health Insurance is, etc. Click on the links below to read about them.

An Insurance Claim is an act wherein, a person who is insured or a person who is the next of kin to the insured contacts the insurance company to get some money due them.

For ex:

1. In case you had a serious health condition due to which, you were hospitalized and had to spend 1.5 lakhs of rupees from your pocket. But, the good news is, you have a health insurance policy, so you can claim the expenses from the insurance company. So, you will fill up a form and submit all documents for the medical expenses to the insurance company. The company will process your claim and settle you the money you spent in the hospital.

2. In case a colleague of yours died in an accident and left his wife and child behind, you will feel sorry for the family. The good news here again is, your company has a group life insurance policy and he is insured for Rs. 50 lakhs, just like you and your other colleagues. So, you call up the wife and explain her the same. She contacts the insurance company, fills up forms and submits proof of death of her husband. The insurance company validates the documents and releases the payment of 50 lakhs to her, which she can use to educate her child and take care of herself until her child grows up.

Now we know what an insurance claim is. Next you might ask me, why is this important?

Why is the Claim Process Important?

It is important because, after a person who had life insurance dies, his family is due some money from the insurance company. So, the simpler the claim process is, the better it is for the family.

Imagine, under scenario 2 in the above paragraph, what if the insurance company rejects the claim of the woman, whose husband just died in an accident and she has to take care of her child as well. It would be bad, wouldn’t it?

This is exactly why the claim process is very important. People get insured to help out their family members even after they are dead and if the insurance company doesn’t settle the claim, the purpose of taking the insurance policy gets defeated. Right?

How to have a Smooth Claims Process?

Insurance companies reject claims all the time. Some more than others. So, to have a smooth claims process, you need to ensure the following when you purchase the insurance policy:

1. Filling up the form

Many people like you and me, may allow the insurance agent to fill up the forms and then complain about not known all the details of the policy. To avoid after-sale shocks, it is recommended that you fill up the form yourself. Also ensure that you get a copy of all the documents you submit. Make sure that you cross-check the details submitted and if you find any discrepancy, you can cancel your policy within 15 days of receiving the documents.

2. Quality of Documents

Always make sure that you submit original/genuine documents to the insurance company. All your details will be validated based on the documents submitted by your survivors. And if you submitted any incorrect documents while buying the policy, the insurance company may reject the claim.

Stating the correct age, date of birth, educational qualifications is very important.

3. Health Related Disclosures

Always make sure that you disclose all your health details correctly. Never hide anything. Insurance companies don’t mind selling policies to people who may have certain health conditions, but they would gladly reject the claim if they find out that the insured person had some disease and hid the fact when the policy was sold.

4. Nominee Information

Make sure you nominate your spouse or parents as your nominee in the insurance policy. They are the only people who are authorized to get the payments on our insurance policy after our time. If there is no nominee, the insurance company might delay or reject claims, so we must ensure that we nominate someone as the nominee for our policy.

Last but not the least, make sure, you pay your insurance premiums on time and everytime. People who pay their premiums on time, have a better chance of getting their claims settled than the ones who default on their premiums.

What is Claim Settlement Ratio?

Claim Settlement Ratio refers to the % of claims settled by an Insurance Company against the number of claims submitted.

For Ex: If 100 people submit claims and the company pays 80 of them, the Claim Settlement Ratio is 80%

Why is Claim Settlement Ratio Important?

It is important because, the higher the claim settlement ratio of the insurance company from which you take the policy, the better are the chances of your family getting paid in case of any mishap.

Which Insurance company in India has the best Claim Settlement Ratio?

Well, this is a tough one and I was able to find some details as of the year ending 2010 in the internet. Am not sure, how accurate they are, but these are the numbers.

Note: All these figures are for death claims on life insurance policies

A Last Word:

Dont get upset or distressed if the insurance company rejects your claim. If you feel unsatisfied with the reason the company gives for rejecting your claim, you can always contact the Insurance Ombudsman or the Consumer Court to address your problem.

Wednesday, April 20, 2011

In the previous article, I had talked in detail about why Women should invest and things like that. As a continuation, in this article we are going to look at some investment avenues for women.

So, lets get started!!!

Why should Women have a Personal Investment Plan separate from their Men?

It is important that women have a separate personal finance plan from her family, be it her parents or her husband. With changing times the need for separate finances has increased significantly. I hate to say this, but the rise in divorce rates is alarming. The surety of life is also lower with increase in accidents and stress related ailments. If a woman handles her own finances she is well prepared to handle money matters individually if the need arises. Knowledge of different investment avenues, savings and expenses is very important to run a family. A separate personal finance portfolio will prepare a woman to face financial challenges. Also, she will not have to bear a major monetary loss in the event of a divorce.

All the more reasons for women to start investing and have an investment portfolio…

What is an Investment Portfolio?

A Portfolio is nothing but the collection of investment instruments held by an individual or a company.

For e.g., An investment portfolio may include shares, mutual funds, gold, bank deposits etc.
To learn more about Investment Portfolio – click here

Look out for Financial Products that are custom built for Women

The first thing you need to do as a woman is, to look out for financial products that are custom made to benefit the women of the country. These products offer you special benefits and privileges that are not available to us (The Men of the country)

When something is available for you to use it, why not make use of it. Right?

Some of these products are:

Product Name

Provided By

Special Features

Jeevan Bharti Insurance policy

LIC of India

The policy does not lapse in the event of failure to make premium payments for a few years. It covers critical illnesses related to women

HDFC Women’s Advantage debit card

HDFC Bank

1. Cash Back of Re. 1 for every Rs. 200 spent 2. Special discount on purchase of Gold Bars 3. Personal Accident Insurance Cover 4. Free Bill pay facility and other loads of features

ICICI Womens Advantage Savings Account

ICICI Bank

1. 0 balance account with just a RD of Rs. 2000 per month 2. Free multi-city cheque book 3. Free ATM Card and loads of other benefits

There are lot more products that offer special features for women. Keep your eyes open when you ready news papers to spot such offers and make use of them.

Note: I am not endorsing any of the above mentioned products. It is just an example to show the special offers available to women from banks in India.

What should a Woman’s Investment Portfolio Consider?

When an Investment Portfolio is created for a Woman, a lot of extra considerations have to be kept in mind. Most investment plans available in the market are Men Oriented and cater majorly to the needs of the working men of the country. Hence, these products don't suit the needs of a woman.

A personal finance plan for women should include the following:

• Regular Income – even when women take a break from their careers it would be good if they can generate a regular income from their investments. Even if it is only a small or meagre amount, it still counts
• Always Keep an emergency fund – Never touch it unless and until it is a real emergency.
• Time your investments for known expenses likes children’s education or marriages etc
• Track your savings and investments regularly.

The Mantra here is:

Save and invest as much as you can. Create an Investment plan and make sure you stick to it.

Deciding on How Much you can Invest

Congratulations if you have decided to start investing. The first thing you need to do before investing is – decide on the amount of money you can spare every month to invest for your future. If you are not the sole bread winner of the family and your husband is there to take that responsibility, I would suggest you try to save atleast 40-50% of your monthly income. This would ensure that in 5 years time, you will be sitting on a comfortable cushion of Investments that amount to nearly 3 times your yearly salary.

Another thing is – Whenever you get any bonus or extra cash-flow like inheritance of property/funds, don't be an impulsive spender and spend it lavishly. Make sure that you continue to save the planned 40-50% of your income, irrespective of how it comes. In such cases, even parking it as liquid cash in your bank account is better than spending it on some luxury item.

A Sample Saving Portfolio for a Working Woman:

Before we get into the details, the following are the assumptions I am making before outlining the portfolio:

1. Our woman is just an average working woman of India
2. She is not responsible for running the family but her income supplements the income earned by her husband
3. She is a responsible mother or a prospective mother who wishes to provide good education and a great future for her kids
4. She wishes to support the retirement corpus that her husband is building to ensure a smooth and peaceful retirement for the couple

Now that we know the assumptions, let us see how the portfolio is going to look:

Investment Vehicle

% of Savings To be Invested

Life Insurance Policy - 1

10%

Life Insurance Policy - 2

10%

Health Insurance

10%

Emergency Corpus - in a Savings Bank Account

15%

Cash in a Bank Fixed Deposit

25%

Mutual Funds

20%

Gold

10%

Rationale & Justification Reg. this Portfolio:

Well, if you see this portfolio, I have included many things. Let us look at the Rationale as to why I did that:

1. Life Insurance

Why? – Life Insurance is Mandatory. Every individual who is earning an income has to be insured to atleast 5 or in best cases 10 times their annual income. You are no exception. You need the life insurance.
Why 2 policies? - You might be thinking, why did I split up life insurance into two policies? The reason is – in case of some unexpected situation, you are unable to pay the premium for both policies, you can close one of them and continue to pay the premium on the other so that you will be insured but at the same time, you wouldn't be burdened by too much insurance premium.

2. Emergency Corpus - Liquid Cash in Bank Savings Account

Do I have to say Why?

3. Health Insurance

Why? – Because, you never know when you will fall sick or need medical treatment. It is always a good idea to have a health insurance policy. Make sure that you include your spouse and children as additional members of the policy to ensure that they are covered too.
If your husband is planning on taking health insurance, include your contribution and take a one good health insurance policy. It is always good to invest on oneself first.

4. Cash in Bank Fixed Deposit

Why? – Cash is King. This is the best 3 words I have learnt in my life. And they will be the best 3 words for you as well. Fixed deposits give you a decent rate of returns (usually around 8%) and would help you build up a good corpus by means of interest rate compounding

5. Mutual Funds

Why? – Mutual Funds are a boon to the normal investor who cannot invest directly in the stock market but still wishes to take advantage of the good returns that the stock market can give us. A 20% investment in MFs will help you generate good returns on your investments at the same time, help minimize losses, just in case the markets underperform.

6. Gold

Why? – It serves two purposes. Gold gives you diversification in your portfolio because gold is one of the best performing asset classes as of today. Also, you can save up a lot of gold for your daughters wedding and do it in a grand fashion.

Some Last Words:

The most important or rather most difficult task when it comes to maintaining the portfolio is – continuing to invest every month. You might be tempted to use the money planned for investment to spend on something else. Smart people will resist the urge to spend and save the money instead.

And, remember to take out some money every year to pay off your Insurance Premiums. Dont let them lapse.

Every home in India revolves around the Lady of the house. Be it the Mother or the Wife, either of these two women run our houses and to a major extent influence our lives. Women of India are multi-faceted and extremely talented. They are good at running houses, raising children, handling stress, as managers, as software engineers and what not. All that being said, the women of India are not so good at Investing.

Am sorry to have said that, but the grave truth is the fact that, Women in India do not bother much about investments or savings. They leave it to their husband or son or father, the man in their life to worry about those aspects. Though this is a nice approach, I personally feel that the women of today must come out of their shells and start investing and saving money for their future. The purpose of this article is to help them do just that.

Before I begin, if you are reading this article, do share this with your lady friends/colleagues/cousins because they too need to understand a few things about Investments and start saving money for their future.

So, let’s get started!!!

How are Women Different from Men?

Apart from the obvious physical differences between Men & Women, there are a lot of major differences between the two sexes. Some are:

 Most men earn money uninterruptedly throughout their lives (until retirement of course) whereas Women are forced to take breaks here and there
 Men are considered the chief income earners of the family and women don't bother much about the quantum of money they earn or save because the man of the house is there to worry about it
 Women have so many other responsibilities like running the house, taking care of the kids, taking care of their parents/in-laws etc that they tend to oversee or ignore the investment or saving money aspect of life
 Family and Children have a far higher priority in a woman’s life than it does for men.
 The list is endless and if I start listing it out, one blog wouldn't be sufficient. So let me stop with these differences alone and add an etc to the list to wrap it up.
 Etc…

Do Women need to Invest?

Most Men might think like this: When I am there to earn money and Invest it for my family’s future, why should my wife bother too much about it?

Many women might think like this: Investment is a mans job. He needs to worry about it. I have more pressing duties like raising my children or taking care of the home.

If you are one among the thousands who think like what I mentioned above, you need to revisit your thinking. Women Do need to Invest and save for their future. Investment is not a Mans Job and Women too can and must invest.

Why should women Invest?

The life of a Woman in India is a lot different when compared to the western countries. A majority of the ladies in our country are house-wives or home makers and do not have any steady source of income. Even the ones that earn face many challenges. Some are:

 Having to take a break from work for a year or so for child-birth and maternity
 Having to take a break from work to join the husband who might be employed overseas
 Having to relocate to a different city to join the husband who is employed in that city or got transferred to a different city – thereby sacrificing their current job and career

Most working women face a daunting prospect of having to sacrifice their careers and income in order to maintain a balance in their married/personal lives.

Every family today wants to provide the best possible education for their children, the best possible life-style for themselves and their parents/children and an extra bit of income from the wife is an added advantage. And if the woman is forced to compromise on her career or income because of any of the above mentioned reasons, her investments or savings can help her supplement her families income.

Apart from this, the average life expectancy of women in India is significantly higher than that of Men. So, she must have a solid corpus to support her in the unfortunate event of her husband not being alive to support her financially later in her life. Statistics show that, on an average, women live five years longer than men, earn 25% less during their life time and work 11 years less in their careers.

So, the point is – Women should Invest and do it regularly.

A Real-Time Example:

Lets say, lady X is currently employed and is earning Rs. 50,000/- per month but she has taken maternity leave and is planning to stay home for one year. Subsequently her husband gets an abroad opportunity and she accompanies him in order to stay with him and her family, she extends her break by lets say 4 more years. So in all, she has taken a 5 year break.

If we assume that she would have earned the same Rs. 6 lakhs every year, the family would have lost 24 lakhs of money that she could have earned (I have just considered the time she spent jobless while abroad with her husband. The time spent on maternity cant be equated with money as it is priceless…) assuming she would have got an average of 10% increment every year – the total amount the family lost sums up to nearly 28 lakhs. That is a lot of money. This 28 lakhs could have been used to:

 Fund her sons education abroad or
 Pay the initial payment on the family’s new home
 Be a corpus that can be used for her daughters wedding
 Pay for a new Car for the family and so on…

Apart from this, when she comes back to India at the end of 5 years of break, she might not get the same kind of job with the same kind of income.

Now, imagine how good it would have been, if she had invested at least 15-20% of her income for the 3 or 4 years of her career before she took this long break, the money would have grown and she would have had at least 8 to 10 lakhs of money that she can utilize for her family. Though this is not as much as the 28 lakhs, 10 lakhs is still a lot of money.

Now, do you realize how important it is for Women to Invest and Save Money?

If this article has instigated your urge to start investing or suggest your wife/daughter/friend to do the same, I would consider the purpose of writing this article served.

And – if you have been a regular reader of my blog, you are sure to know that I am not someone who will leave a topic half finished. As a continuation to this chapter, I will be writing the next chapter about how women can invest and what instruments she can choose and how to structure her investment portfolio.

The Indian Income Tax policies as per the budget this year has had its share of good as well as bad news. While everyone expected a significant hike in tax slabs and section 80C, the reality was far from what was expected. To know more about the Indian Income Tax policies click here

Though there wasn't much change in these areas, there was however one significant news. This news affects all Mutual Fund Investors who invest in ELSS Mutual Funds to reap the benefits offered under Section 80C. The purpose of this article is to elaborate on that new policy and to analyze how it affects us.

So, lets get started!!!

What is ELSS?

Well, this is something we have covered in various articles in my blog in the past. ELSS stands for Equity Linked Saving Scheme and is a variety of Mutual Fund that invests in the stock market as well as provides tax benefits to investors under the section 80C of the Indian income tax policies. To know more about ELSS you can refer to the below articles:

Until now, Equity Linked Service Scheme (ELSS) has been one of the first-choice mutual funds for Indian investors. As you might have read in the article on what is ELSS, It has two main benefits:
1. It helps you to save tax and
2. It helps you to invest in the stock market.

The 3 year lock-in period ensures that the investment is long-term and also is protected from market fluctuations. Market Statistics reveal that Rs 23,700 crores worth of ELSS schemes have been invested in May 2010 as compared to Rs 11,800 crores in May 2007. Between 60-120 lakh people regard ELSS as a tax-saving investment and are invested in the various ELSS schemes available in India.

What is DTC?

DTC stands for Direct Tax Code. It determines what income in India is taxable and the kind of taxes individuals who earn an income in India have to pay.

Impact of DTC 2011 on ELSS Investments

The DTC code 2011 has significantly affected ELSS Investments in India. This is because:

Starting April 1, 2012, no new ELSS Mutual Funds will be exempted from taxes taking away one of the biggest motivators of ELSS Investment. This is likely to hit the investors as well as the Mutual Funds industry hard.

How does this affect us?

Well, this is really bad news because – Starting April 1st 2012, all fresh investments into ELSS schemes will no longer be eligible for tax benefits. Which essentially means that ELSS mutual funds are no longer an option for tax saving.

I personally feel that the best option to save tax for the younger generation has been taken away from Investors.

Is it sensible to still invest in ELSS?

The important point to be noted here is that according to the revised 2011 Direct Tax Code, only ELSS Mutual Funds initiated after April 1, 2012 will not be exempted from tax deductions. This does not apply to already existing ELSS funds and investments made before the aforementioned date, so it would be to wise to avail this offer while it is still available. So, you can still invest in ELSS mutual funds for this financial year 2011 – 2012 and reap the benefits they offer before the validity period runs out…

What will happen to the ELSS Funds Starting April 2012?

They will become regular Equity Mutual Funds. They will still continue to operate as regular equity oriented mutual funds that investors can invest in, with two major differences:

1. There will be no tax benefits on investing in ELSS funds &
2. There will be no 3 year lock-in period.

To sum it all up in one word – ELSS schemes will no longer be a separate class of Mutual Funds and would become regular Equity Oriented Mutual Funds.

What has happened because of this new DTC Ruling?

Despite the fact that tax benefits for ELSS funds already in existence will continue, there has been a rush among investors to exit these schemes. ELSS was considered a sort of starting point for budding investors as they made their entry into the equity market, but with the coming of the DTC this looks certain to change. From next year onwards, there are no tax benefits for investing in these schemes and hence they will become less and less favourable for investors and people will start exiting them, big time. So, the NAVs of your funds might drop significantly.

What should we do now?

Below are some options that are available for us. They are based on your situation:

1. If you are a seasoned ELSS Investor (Someone like me who started investing in ELSS schemes years ago) and your investments are past the 3 year lock-in period then:

a. Check the performance of the fund in the past one year and if their performance is not at par with the best performing Equity Diversified Mutual Funds – Exit them and invest in a well performing regular Equity Diversified Mutual Fund Scheme
b. If your fund is performing very well, keep your fingers crossed and review the funds performance once every 2-3 months and exit the scheme at the point where you feel the fund isn’t performing as well as it is supposed to be.

2. If you have just started investing in ELSS Schemes in the past one or two years:

a. Wait till your investments complete the mandatory 3 year lock-in period. Once it completes 3 years, check out your options as mentioned in point 1 of this section and exit the funds, the moment you feel the fund NAV is falling significantly.

3. If you are a new Investor considering ELSS as an investment option:

a. You have only one year to take advantage of the tax benefits
b. So, invest in the best ELSS mutual funds available in the market and keep your exposure limited
c. Do Not Invest in newer or smaller ELSS MFs that aren’t performing as well as their experienced cousins

Is it the End of the Road for ELSS Schemes?

Well, to be honest, the answer is Most Probably Yes. There might be no fresh investments into ELSS schemes and hence, they might run out of business in the next 4-5 years. So, personally I would suggest you check out other investment options for tax saving and regular Equity Diversified Schemes for Mutual Fund Investments.

But, and this is a big BUT, a point to remember is that, this DTC is just a draft bill and is yet to be passed as a law. If in the next one year (before April 1 2012) the bill doesn't become a Law, ELSS funds might continue to provide tax benefits to Indian investors.

Tuesday, April 19, 2011

We all have a bank account, have loans, credit cards and avail other numerous services from Banks. But, a majority of us do not know our basic rights. Every customer of a Bank has a set of rights that he is entitled to, a set of rules that banks must follow. Well, the purpose of this article is to educate all of us, the rights we have when it comes to Banking.

So, lets get started!!

A Word before we begin:

If you have the habit of reading a newspaper or browsing the internet news websites, you could have seen numerous articles like:

Bank Reprimanded for using Goons to collect loan instalment from customer

Or

Customer Receives 1.25 Crore bill on a credit card surrendered 10 years back

And so on…

All of us are prone to such shocks and surprises when it comes to the banking industry. Though we are all educated and are decent citizens of this great country, there might be unfortunate circumstances wherein we might be illtreated or underpriviledged by banks. It is our duty to know our rights and stand up to them if such an incident happens.

So, here are our rights!!!

Know Your Rights - Banking Customer Service

The Reserve Bank of India has formulated a set of rules and guidelines that banks have to follow when it comes to treating customers. All these rules are to benefit and protect the interests of the customers. They are:

Your Right No. 1: Right to know Interest Rate Applicable on Loans

If a customer has borrowed against a floating rate of interest (A floating rate loan), then he/she has to be informed about any change in rate through given means such as letter, email, SMS etc. The Interest rate change information should also be available on the Banks’ website.

This means that – they cannot just change the rate of interest on a loan that you have taken from them without informing you. If they do that, you have the right to fight against them.

Your Right No. 2: Right to Get Loan Documents Bank on Time

Bank has to return property and other documents within 15 days of closure of loan whether such demand has been made or not by the customer. If a Bank fails to return documents in the stipulated time, the customer should be adequately compensated in cash.

This means that – they have to return all forms of collateral (like property documents, fixed deposit receipts, gold etc) that they have received against a loan within 15 days of the customer (you) repaying the loan in full. If they don't, you have the right to fight against them.

Your Right No. 3: Right to Know details of a Joint Account

Banks must inform all joint holders before classifying an account as dormant/ inoperative.

This means that – they have to intimate all the joint holders of an account about the inactivity of the same before they make it dormant. Lets say you and your wife have a joint account with XYZ bank and you leave abroad and haven’t transacted for 3 months, they cannot just close the account. They have to send a letter to you as well as your wife before they do that. If they fail to do so, you have the right to fight against them.

Your Right No. 4: Right to Buy only the Services you Want

Bank can’t force customers to take insurance cover (for the securities lodged) from a particular insurance company. The customer is free to select any insurance company.

This means that – they cannot ask you to take a ULIP or any other insurance policy for giving you some service. For ex: when I visited a bank last year asking for a safety deposit locker, the customer service officer asked me to take an ULIP policy with premium of Rs. 50,000/- per year to give me the locker. Luckily I did not accept and got a locker from another bank. But the fact here is, they cannot force you into buying some kind of service in order to give you some other service. If they do that, you have the right to fight against them.

Your Right No. 5: Right to say No to Pre-Approved Services

Banks can’t pre-sanction loans to any customer based on telephonic confirmation. The Bank has to get a written consent letter from customer.

This means that – you cannot be given a loan, unless you sign a written agreement/letter. These days customer service officers call up and explain some hi-fi stuff on phone and using your “oh ok” response, sell you some insurance policy or loan. They cannot do that. They cannot provide any service unless and until you sign and ask for it. If they do such an act, you have the right to fight against them.

Your Right No. 6: Right to Close your Bank Account

In the event of account closure request, the Bank has to close the account within 3 days from receipt of the request.

This means that – they cannot delay your bank account closure sighting any funny reasons. If you want your bank account closed and are willing to pay the charges associated with it, they have no right to stop you from doing so. If they try to do so, you have the right to fight against them.

Your Right No.7: Right to get Complaints Resolved on Time

Banks have to address customer complaints in 30 days, failing which they have to compensate the customer.

This means that – If a customer has any complaint against the services rendered by a bank, they have to address it within 30 days of the receipt of the complaint. If they don't, you have the right to fight against them.

Your Right No. 8: Right to Know Recovery Agents

Banks must publish details of all recovery agents on their website so a customer can check whether an agent is authorized or not.

This means that – No stranger can visit your door step and ask for the loan money. If someone claims to be an agent of the bank, you have the right to ask them for proper credentials and also visit the banks website to see if the person is indeed a registered agent of the bank. If you cannot verify the details, you have the right to ask them to leave.

All these rules are applicable to member Banks of Banking Codes and Standards Board of India. All Banks that are operational in India are supposed to follow these rules. To view the list of all registered banks in India “Click Here”

Before we finish – you might ask me – what I mean by, you have the right to fight against them. That doesn't mean a literal fist fight. You have the right to fight against them in a court of law. Alternately you can also contact the banking ombudsman of your local region and complain against the bank with proof of the problem you faced.

All banks are supposed to display the details of the regional banking ombudsman in a prominent place in their bank branch premises. You can get those details and raise a complaint with them.

Though this article might not meet your expectations with respect to the kind of data that you are used to see in my blog, the purpose of this article is two fold:

1. To list out all the Registered Banks in India &
2. For you to find out if a Bank is authorized to carry out banking operations in India.

The list below is the list of Banks that are registered with the Reserve Bank of India and are Authorized to carry out banking operations within the bounds of the Indian Nation.

There are cases where people feel that an entity is a bank and might deposit money, while they might not be registered/authorized to collect deposits. So, as customers it is our responsibility to validate the credentials of the entity with which we deposit our cash.

The list below is correct as of May 2012 (Original Article Written in April 2011).

An Important Point to Note here is that, some of the Foreign Banks in the list above do not provide banking services like savings account, current account etc to regular citizens and cater exclusively to the High-Net-Worth-Individual population of India.

Among these 62 banks, 28 are Public Sector or Owned by the Government of India, 18 are Private Sector Banks and 16 are Foreign Banks. To know which is which, click on the links below:

Thursday, April 7, 2011

Well, you might think I am crazy to ask such a question and I would be surprised if you dint… yes, you read the title right, are Unit Linked Insurance Plans becoming Obsolete?

The purpose of this article is not to tell you what an ULIP is or whether to invest in ULIPs or not. I have already dedicated a few of my older articles to do just that. You may want to visit them to understand them better.

It has been a testing time for all equity market investors world wide. The stock markets are volatile and people are cautious before they invest their hard earned money in stocks. But, at the end of the day, stock market instruments are still one of the best preferred investment options for everyone.

But, it is such testing times that can spell the doom for certain investment options. In this case ULIPs or Unit Linked Insurance Plans.

Insurance Agents have been selling ULIPs like crazy and People have been buying them for years. In the past few months, Equity investments made by insurance companies went downwards, as policyholders surrendered some unprofitable old ones to shift to more attractive new products. To add to the woes of the ULIP sellers, regulatory changes did not help either.

The net investment from Insurance companies in the Stock markets was over Rs. 34,000 crores last year (i.e., They received that much money as ULIP premium) whereas this year in the first 3 months, they have invested a net of only around Rs. 3000 crores. More than 50% down than what they invested in a similar timeframe last year.

Per, last years numbers, by the end of March 2011, the insurance companies should have invested Rs. 8000 crores in order to atleast reach the numbers they achieved last year, but unfortunately they are not even 50% close to it.

This is because:
1. A lot of people surrendered their ULIP policies they had invested a few years back
2. People are not willing to buy new ULIPs because the existing ones haven’t lived up to their promises
3. People have started preferring traditional insurance policies rather than ULIPs

I personally have not been a big fan of ULIPs and you might have sensed it, if you are a regular reader of my blog. Even though I am not a big fan, atleast for the benefit of my readers like you, it is my duty to analyze what went wrong for ULIPs. Isn’t it?

What Went Wrong?

Well, the reasons are numerous. Let us look at them one by one…

1. ULIPs are not Magical Investment Instruments

This is true. ULIP is nothing but a combination of Mutual Funds and Traditional Insurance policies. Unfortunately the Agents who sold these ULIPs and the companies that floated them, did not explain the ground reality to their investors. Every insurance agent in town went around with extraordinary projected returns, extrapolated for the next 10 or 15 years. Unfortunately, our Insurance advisors conveniently forgot that the equity market is not an upward moving machine and the equity markets lived up to their reputation. The past 3-4 years have been extremely uncertain and people have realized that, their net investments are not even worth what they invested.

So, people have started surrendering their ULIP policies as soon as the lock-in period of 3 or 5 years are over.

To Meet the Surrender Demand, Insurance companies are forced to sell their holdings or divert the fresh inflows to pay off customers.

This is the biggest reason for their downfall – Promising Unachievable or Impossible Returns to Investors and Failing to Achieve them!!!

2. OverSelling ULIPs

Any product that is over-sold usually goes out of favour in due course of time. When ULIPs were introduced as a revolutionary investment option, every tom dick and harry was selling them and naive investors were buying them just like crazy. And as time went by and the craze started to fall off, the reality struck the investors and because they did not perform as well as they were supposed to, people started selling as well as avoiding them.

3. Profit Involved

ULIPs have been a very profitable instrument for the companies that floated them and the agents that sold them. The same cannot be said about the investors who bought them. ULIPs have the highest commission margin for agents that sold them and the highest expense ratio among equity investment instruments for the Insurance companies. Everyone made merry by selling them while the investors who bought them weren’t having so much fun.

4. Regulatory Concerns

The Equity Market Regulators (SEBI) and Insurance Regulators (IRDA) realized the fact that insurance companies were making a killing by selling these products and by not disclosing all facts concerning them. Investors were even given pamphlets that said how much their money would be worth over the next 5 or 10 years. When the regulators realized this, they started tightening the noose on the rules related to these hybrid investment products and when the free-run was no longer possible, insurance companies had to disclose all concerned facts which made ULIPs less and less desirable among investors

5. Lesser Profits for Agents

Because of heavy competition, insurance cos were forced to reduce their margin on ULIPs. They did so by cutting on the commission they paid to the agents who sold these policies. An agent who used to get upto Rs. 45000 for a policy investment of Rs. 1 lakh by an investor 3 years ago, gets less than 10% of the same today. Making it a not so profitable sale prospect for the agents and eventually the agents are not as excited as they were before to sell them today.

6. The Lock-In Period

ULIPs are long term investment options. They come with a basic lock-in period of 5 years or more. Investors have no choice but to keep investing for 5 or more years even if the ULIP they chose was sinking. Considering the high expenses & fees involved with ULIPs and also considering the fact that the equity markets were choppy, investors realized the fact that, the current value of their investments at the end of 5 years is lesser than what they had actually invested, they started surrendering their investments. This resulted in huge losses for the insurance companies that sold them.

Did Investors Make a Mistake?

If you ask me, the answer is YES. A big YES. It is the responsibility of the investor to perform proper due diligence before locking in money for such long durations (5 years or more) By believing whatever was told to them by the agents, people invested vast sums of their savings into these products and ended up burning their fingers.

After all, every single action we do has a monetary repercussion. People sell things to make a profit and I wouldn't blame the insurance cos or the agents for selling them like pancakes because they were making solid gains by selling them. It was the responsibility of the person who bought it to be careful, when that doesn't happen, people stop buying and that is exactly what has happened!!!

Tuesday, April 5, 2011

Mutual Funds are a boon to the common man who wants to invest in the equity markets but does not have the time or the knowledge to make a profit out of picking the right stocks. But, not all mutual funds are making profits. There have been funds that have performed miserably eroding the investments of the investor who trusted them. So, the onus is now on choosing the right fund which is going to give you a profit. Afterall, that is all we want right? Our money to earn more money for us…

Well, this article is about giving you 7 ideas that would help you choose the right mutual fund for your portfolio…

Lets get started!!!

Before we begin, let me tell you that these ideas are in descending order of importance. That is, idea 1 is of greater importance than idea 2 and so on.

So, a fund that meets, lets say the first 5 ideas but fails the last 2 is better than one that meets the first 4 and fails in the last 3.

Idea 1 - Does the Mutual Fund match your ‘financial profile & needs’?

Mutual funds offer a whole variety of products such as aggressive equity funds, index oriented funds, gilt funds, income funds, liquid funds, gold funds, Sector Specific funds, etc etc. To be honest, the list is very long. But the point here is, you don't have to buy all of them. You need to choose the fund that suits your financial profile.

For ex: A youngster who has just started earning and is planning on setting up a family soon or buy a house would need to choose an aggressive equity fund whereas the gentlemans father, who is retired and is planning on using his corpus for his life post retirement, he would have to choose debt oriented funds.

So the requirement of the individual and his financial profile is the single most important determining factor in choosing a fund.

The past performance of the fund is one of the most important criteria in fund selection. That is why it is the no.2 on our ideas list.

Everyone knows that the past performance of a mutual fund may or may not be sustained in future but the fact is, a fund that has outperformed the index and its peers is always a good bet when compared to another fund that has underperformed.

Some funds outperform the markets in spurts and bursts but fail to sustain the momentum whereas some of them have consistently outperformed the markets for years…

The idea here is – Choose a fund that is a consistent performer who has provided solid returns on investment year after year.

Idea 3 – Check The Fund House and The Fund Manager

Investment is both a science and an art. Good research teams i.e. the science part of investing, are necessary in identifying the best possible opportunities available in the market. A good fund manager will not only buy the right stocks at the right time but also, sell them at the opportune moment to make the most profit for his investors.

Two fund managers could react in a different way if given the same amount of money and the same set of stocks to buy. A lot of impetus is on the fund managers choice of stocks and his timing of buy and sell. Also, a significant influence in the fund managers decisions is the fund house. Certain fund houses have a track record of solid performance and they strive very hard to keep up the same. Hence a combination of a good fund house and a smart fund manager is the best possible combination.

The idea here is – Select a Fund House that has a history of solid performance and a Fund Manager who has given solid returns on investment would be a strong investment choice…

Idea 4 - Is the AUM appropriate?

AUM – Stands for Assets Under Management – This is the amount of money at the disposal of the fund manager to invest in the markets.

This again is one very important consideration but not the most important. To be honest, the size of the Fund that is being managed by a fund manager doesn't have any bearing on the returns generated. A capable fund manager could manage a multi-thousand crore fund portfolio better than another mediocre fund manager who is managing only a few hundred crore portfolio.

There is no mathematical rule that can tell us the best size for a given mutual fund. But, the rule of the thumb is, a fund that is too large makes it difficult for the fund manager to sustain the momentum and continue to generate the kind of returns that were generated when the funds assets were more manageable.

Having said that, AUM could be an important factor in the fund’s overall performance! In all probability, a fund manager managing a smaller fund will be able to diversify his investments better than the manager who has an ultra-large portfolio to manage.

The idea here is – Choose a Fund that is large and has a good AUM base but at the same time, don't choose one that has ultra-large AUMs that have become practically unmanageable for the fund manager. At the same time, avoid funds with ultra small AUM.

Idea 5 - Risk parameters

The Risk Parameters of the fund have a strong bearing on the returns generated by a mutual fund. Practically speaking, two funds may deliver the same returns to its investors but, I would personally choose a fund that does it by:
• Taking lesser Risk
• Consistently – year after year
• With less volatility when compared to the market.

Therefore, after you have short-listed the funds based on the performance, portfolio, fund house etc., check the risk parameters and opt for those that tend to deliver good returns despite taking lesser risks.

The idea here is to – Choose a fund that gives good returns and at the same time takes lesser or rather educated risks instead of reckless risks that can backfire.

Idea 6 - Annual Recurring Expenses

The amount of returns generated by your portfolio are directly influenced by the amount of money expended by the fund house. The expenses done by the fund house will eat into your returns. These expenses include management fees, custodial fees, marketing and selling expenses, trustee fees, auditing fees etc.

Before you start to get too worried about these fees, remember that the SEBI and AMFI have set certain maximum limits on how much a fund house can spend on these expenses. That being said, some fund houses spend as much as SEBI and AMFI allow them, whereas some fund houses keep their expenses controlled and pass on this profit to their investors.

I guess, you already got the whole idea. A fund that has lesser expenses is always better than one that has high expenses.

The idea here is – Choose a fund that is able to manage its expenses and keep them as low as possible. Avoid funds that have a history of overshooting their expenses thereby eroding the returns for the investors.

Idea 7 - Entry & Exit Loads

Last but not the least, the entry and exit loads on the mutual funds is an important consideration on choosing a mutual fund.

Entry load: As per the recent regulation, SEBI has mandated that with effect from August 1, 2009 there will be no entry loads for all mutual fund schemes.

Exit Load: This is the load payable when you sell of your MF units. The exit load is generally payable only if you fail to satisfy certain pre-specified conditions. Therefore, in most cases you may not find a compulsory exit load but eventually you will pay an exit load if you fail to meet the specified condition. For ex: if you sell a equity diversified mutual fund before 1 year of purchase, you will end up paying a 2% exit load.

A lower load is always better. However, since the load is nominal, sometimes even paying higher loads may be fine if the fund’s performance and other factors are very good.

I would choose a fund that has a 2% exit load but has been consistently performing for the past 10 years over a fund that has only a 1% exit load but has been volatile in its performance.

The idea here is to – Choose a fund that has a low entry/exit load but at the same time choose one that does justice to the load they charge.

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